1-Star Stocks Poised to Plunge: Hot Topic?

Before you go, we thought you'd like these...
Before you go close icon

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, specialty retailer Hot Topic (NAS: HOTT) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Hot Topic's business and see what CAPS investors are saying about the stock right now.

Hot Topic facts

Headquarters (Founded)City of Industry, Calif. (1988)
Market Cap$385.6 million
IndustryApparel retail
Trailing-12-Month Revenue$715.1 million
ManagementChairman/CEO Lisa Harper
CFO James McGinty
Return on Equity (Average, Past 3 Years)1.2%
Cash/Debt$63.6 million / $0
Dividend Yield3.6%
CompetitorsAbercrombie & Fitch
Forever 21
Wet Seal

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 46% of the 386 members who have rated Hot Topic believe the stock will underperform the S&P 500 going forward.

Just last week, one of those Fools, jed71, succinctly summed up the Hot Topic bear case for our community:

[T]his is a very high price for a very risky stock. Trading at 27 times earnings and 13 times cash flows. This company is attempting to compete in a very tough industry. In addition, teen and young adult unemployment continue to be at very high levels across the country. Do they really have the extra $$ to spend in stores such as this? My guess is no but maybe Mommy and Daddy are making up for the lack of cash in most teens' pockets.

I expect margins to continue to get squeezed across the clothing industry. Mostly due to higher cotton and material costs (driven by high soft commodity and oil prices). I did not look at their website for long but it looks very grungy and maybe a little Goth. How many teens still adhere to this style?

If you want market-topping returns, you need to protect your portfolio from any undue risk. Luckily, we've found another retailer we are incredibly excited about -- excited enough to dub it "The Motley Fool's Top Stock for 2012." We have compiled a special free report for investors to uncover this stock today. The report is 100% free, but it won't be here forever, so click here to access it now.

Want to see how well (or not so well) the stocks in this series are performing? Follow the newTrackPoisedToCAPS account.

The article 1-Star Stocks Poised to Plunge: Hot Topic? originally appeared on Fool.com.

Fool contributorBrian Pacamparaowns no position in any of the companies mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Fool'sdisclosure policyalways gets a perfect score.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners